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Bear of the Day

We are downgrading Montpelier Re Holdings (MRH) to Underperform from Neutral on the back of loss reported in the third quarter results. Montpelier Re Holdings' operating loss came in much wider than the Zacks Consensus Estimate, led by catastrophe losses, resulting from Hurricane Irene and the Texas wildfires, U.S. regional aggregate covers and July's Danish floods.

The loss ratio in the third quarter was 89% compared with 33.3% in the year-ago quarter. Results include $60 million of catastrophe losses partially offset by $18 million of favorable prior year loss reserve movements. The current pricing environment in the primary insurance market and the stressed economy are expected to restrict the top-line growth.

Our six-month target price is $16.00. This price target along with the annual dividend of $0.40 implies a negative return of 6.1% over that period. This is consistent with our Underperform rating.

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